How it works (Example):
Also called a broker loan or demand loan, a call loan is granted to a brokerage house that needs short-term capital for financing clients' margin portfolios. It may be called by the lending bank at any time. Likewise, the brokerage house may fully repay a call loan without prepayment penalties. Call loans are collateralized using securities, and interest accrues on a daily basis at an unsecured adjustable rate.
Why it Matters:
Used to provide capital for margin trading, call loans are a risky financing method for brokerage houses vis-à-vis clients. In addition to quickly accruing interest, call loans may be taken back by the lender at any time, possibly using proceeds from the sale of client securities in the event the brokerage house is not solvent enough to repay the loan with its own cash.